March 21, 2012

ONE OF THE NICE THINGS ABOUT BEING IN THE GROWN-UP PARTY...:

It's the ninth inning of the Republican presidential primary, and Mitt Romney just brought his ace closer into the game. Former Florida Gov. Jeb Bush's support of the GOP front-runner, one of the race's most coveted endorsements, sends an unequivocal message to Republicans everywhere that after a long, bitter primary fight, it's time to unite behind Romney as the party's presidential nominee.

Bush's imprimatur won't strong-arm conservative insurgent Rick Santorum out of the race, but, coming a day after Romney's commanding victory in the Illinois primary, his support leaves the ex-senator from Pennsylvania suddenly in desperate need of another primary victory to maintain credibility.

...is the discipline they demonstrated in holding off the Jeb endorsement until Mitt had won the race himself.

TWEAKING OBAMACARE:

Ryan's proposal for Medicaid reform involves "converting the federal share of Medicaid spending into a block grant indexed for inflation and population growth." This contrasts meaningfully with a plan put forth by four House members on the conservative Republican Study Committee: Reps. Todd Rokita (Ind.), Tim Huelskamp (Kans.), Paul Broun (Ga.), and Jim Jordan (Ohio). The RSC proposal aims to keep Medicaid spending flat, with no inflation adjustment, after block-granting it to the states. [...]

The new GOP budget would create a "Medicare Exchange"--much like Obamacare's insurance exchanges but with a public option--for future retirees who are under the age of 55 today. Critically, the level of premium support would be determined by the second-least expensive plan in a region, or traditional fee-for-service Medicare, whichever was lower. Seniors would keep the savings if they chose a cheaper plan:

The second-least expensive approved plan or fee-for-service Medicare, whichever is least expensive, would establish the benchmark that determines the premium-support amount for the plan chosen by the senior. If a senior chose a costlier plan than the benchmark plan, he or she would be responsible for paying the difference between the premium subsidy and the monthly premium. Conversely, if that senior chose a plan that cost less than the benchmark, he or she would be given a rebate for the difference. Payments to plans would be risk-adjusted and geographically rated. Private health plans would be required to cover at least the actuarial equivalent of the benefit package provided by fee-for-service Medicare.

This is meaningfully different from PTP 1, in which seniors didn't gain any savings from choosing a plan cheaper than the premium support level, and where traditional Medicare was not an option.

Another key detail: Ryan's plausible assumption is that competitive bidding could drive Medicare spending down without hard spending caps. However, as a backstop, the proposal caps the growth of premium support levels to GDP plus 0.5 percent, which--not coincidentally--matches the targeted Medicare growth rate in President Obama's budget.

TOPIARY TIME:

Commodity markets -- including those for wheat, corn and crude oil -- are very different from capital markets, which exist for anyone to speculate in stocks.

The commodity markets, however, are for commercial purchasers and producers to control their risks by hedging against future price moves.

Commodity futures markets were created so that wheat farmers and oil producers could sell their products today -- even though they won't produce and deliver them for months.

A food company that uses wheat to make cereal could pay a farmer today for delivery in a few months. The farmer can then plant his crops knowing there will be a buyer at a set price come harvest time.

Similarly, commercial buyers can plan today because they know what price they will pay tomorrow. Commodity futures markets allow buyers and sellers to match up and ensure that they get paid.

Speculators are allowed to participate on a limited basis because there aren't always enough sellers to match the demand for buyers, or buyers to match the availability of sales.

For decades, market participants have known that commodity markets work best when speculators make up 30 percent of market activity, with the remaining 70 percent devoted to commercial traders.

With the new tidal wave of investment, that ratio has flipped. Now, speculators are about 70 percent of activity in many commodity markets and commercial hedgers only about 30 percent. This is largely the result of investment banks creating and selling "commodity index funds" that gamble on, and usually drive up, food and energy prices.

Our organization, Better Markets, has conducted a comprehensive study showing that this "invasion of the commodity index funds" has radically changed the price structure of commodity markets.

In the past, prices were based largely on supply and demand, but they are now driven up by investors placing self-fulfilling bets on higher prices for oil, wheat and other products.

The study finds strong evidence of a direct causal link between speculative buying and selling, and changes in commodity price curves resulting in increasing prices.

To combat this and, in particular, to remove the speculative price distortion, commodity index funds should be prohibited.

A TRIP TO THE LAUNDROMITT:

Illinois primary day was a laundry day for Mitt Romney. He washed his shirt in the sink and then took Rick Santorum to the cleaners. The former Massachusetts governor beat his closest rival handily, 47 percent to 35 percent. It was the first no-caveat, everyone-is-watching, takes-place-in-a-location-you've-heard-of contest that Romney has dominated since his victory in Florida two months ago.

The Republican nominating contest could take a long time. So it's probably wise not to clutch the dashboard every time there's a bend in the road. Still, there was something different about Romney's win in Illinois. On recent primary days, he has been able to claim he won the most delegates, but Santorum has emerged from those nights with the energy and excitement. Tonight Romney can crow about having the excitement and winning the most delegates in a state where he didn't have a home field advantage like Michigan or a regional connection like New Hampshire. Even when he has won, Romney has had to say unsatisfying things like "a win is a win." After Illinois, he can just smile. Everyone gets it.